Yahoo! Inc.: How Much Is YHOO Stock Really Worth?
What You Should Pay for YHOO Stock
Trading on Yahoo! Inc. (NASDAQ:YHOO) is an opportunity to make monster returns, but most investors are just turning a blind eye. They say there’s too much uncertainty around YHOO stock. Well, cry me a river.
Investing isn’t easy. If you want a sure bet, go buy some low-yield bonds. Those are safe investments. You’ll be able to sleep easy at night, but the flipside is that you won’t see any capital appreciation—and you definitely won’t get rich.
Besides, Yahoo stock is genuinely trading at a discount. The company’s share price has been in decline since November 10, 2014. It peaked at $51.75 that day. Today, YHOO stock costs $36.90 per share (at the time of writing).
I think it’s worth somewhere between $56.00 and $61.00. And this isn’t just wild speculation—it is based on hard numbers. All I did was value each of Yahoo’s segments separately, and then add them together.
Let me explain…
Yahoo’s market capitalization is $34.98 billion. That’s what the market thinks YHOO stock is worth. But the market has it wrong. Yahoo is really the sum of three distinct businesses. If you add those three together, the value is far higher than $34.98 billion. (Source: “Yahoo Is Looking for a New Way Around Alibaba Taxes,” Bloomberg, December 2, 2015.)
The first is the “Core Business,” which includes things like Yahoo! Finance. That is the segment we’re most familiar with. The second is Yahoo! Japan. And finally, there is the company’s stake in Alibaba Group Holding Ltd.
The Alibaba stake is worth $32.6 billion. Yahoo had invested $7.6 billion in Alibaba stock back in 2012, which means the company made more than 428% on that investment.
| Yahoo Stock Undervalued | Current Value = $36.95 | ||||
| Est. Sale Price for Core Business | Value of Cash | Yahoo! Japan | Alibaba Stake | YHOO Stock* |
| Scenario 1
$6.0B |
$6.0B | $8.7B | $32.6B | $56.29 |
| Scenario 2
$10.0B |
$60.52 | |||
| *These forecasts are based on the estimated sale price for Yahoo’s Core Business
Data source: Bloomberg |
||||
As you can see from the chart above, Yahoo has quite a few assets. Let’s ignore the far left column right now. The company put up its Core Business for sale two months ago, but we don’t know how much it will sell for. So ignore it for now.
What we know is that the Japan segment of the company is worth $8.7 billion. It’s also a fact that Yahoo has $6.0 billion in the bank. And the Alibaba stake is worth a hefty $32.6 billion. Add those together and you get a market cap of $47.3 billion!
But wait…investors are currently valuing Yahoo at $34.98 billion. Does that mean the Core Business is worth -$12.32 billion? That doesn’t make any sense. Big-name companies like Verizon Communications Inc. are looking to buy the Core Business.
Analysts estimate that Verizon might pay as much as $10.0 billion for it, so if we add that to the valuation, YHOO stock should be worth $60.52 per share. There’s just too much pessimism floating around the share price right now, which is why investors can’t see it.
